UPDATE 17th DECEMBER 2018

In late November, I visited Inner Mongolia (IM) and met with the Party Secretary in Wulanchabu. He informed me that Wang signed a compensation agreement on 9th November 2017 for 53.55m rmb of which:

13.24m rmb was paid by the government to settle local claims, with the balance to be paid in cash to LVST.

IM Government promised to pay 10m by 15 Nov 2017 (it was paid).

The remaining amount was due to be paid (30m rmb) by Feb 15th 2018.

This amount was not paid by IM as there were claims from a court in Linyi.

Additionally

From what we were told in IM, the Linyi court has accepted claims for about 50m rmb; on top of this, we are aware from the Control Risks report that there is a registered bank charge (against the land) of 16m rmb, however this has not been called as the loan is still current.

To these amounts should be added employee claims (say 10m rmb) and Sorbic’s debt of say 36m rmb (including interest).

The LVST land in Linyi has an estimated value of between 40-80m rmb

Therefore the estimated assets are:

RMB m

IM:

30

Linyi Land

60

Total assets

90

Less Liabilities:

LinStaff

10

Total

90

To prove our debt (Wang’s debt is guaranteed by LVST and Sorbic called the guarantee in May 2018), we have lodged a claim with CEITAC which is due to be heard in late January. Additionally, to help matters, the IM authorities have agreed to freeze any actions/payments until Sorbic’s position is clarified.

The recovery % to Sorbic will be wholly dependent on the success of our arbitration claim and the success of Sorbic’s inclusion in the realisations of the assets of IM and LVST.

John McLean
Chairman
17th December 2018

SORBIC UPDATE: NOVEMBER 2018

On 18th July 2016, the agreement dated 25th February 2016 was approved by the Linyi authorities to sell LVST for a consideration of RMB 38m to Wang. Part of the contract stated that if there was a dispute, then the matter would be referred to the Chinese Arbitration court (CEITAC) for resolution. Additionally, as the share sale was to Wang it was agreed that LVST would guarantee the obligations of Wang;

Due to the delays in obtaining a business licence, Wang paid a goodwill payment of RMB 3m to Honourfield’s bank account in China;

The new business licence was granted on 28 September 2017.

Subsequently Wang pleaded that he was unable to pay RMB 38m and a new amendment was agreed (10th November 2017) which reduced the total amount he had to pay to RMB 23m, conditional on full payment by 31st March 2018;

If the revised amount was not paid by 31st March, the original debt of RMB 38m would be reinstated;

On 23rd November 2017 Wang paid RMB 5m with the next payment due on 26th December 2017

In February 2018, LVST’s operation was stopped by local environmental protection authorities for leakage of pollutant. LVST workers were sent back home without payment.

No subsequent payments were received and under legal advice and the provisions of CEITAC, a demand letter dated 1st March 2018 was served on Wang giving him 60 days to respond and either pay or offer an alternative proposal;

During the 60day period, Sorbic instigated a Control Risks report into Wang’s affairs which showed that he had a number of other companies and that there was a bank borrowing (RMB 16m) secured on the LVST land in Linyi. Additionally, there was evidence that the Inner Mongolian authorities still owed LVST approximately RMB 26m as compensation for the earlier land issue;

Wang did not respond to the demand letter;

The arbitration claim was drafted and submitted to CEITAC in June 2018 which resulted in a notification being sent to Wang;

In July, Wang requested a meeting and stated that if the claim was pursued, LVST would be forced to close;

In August Wang disappeared from LVST and Linyi;

CEITAC attempted to serve the arbitration papers on Wang, however the address per his ID card was out of date, consequently a notarized service of the papers has now taken place at LVST. The Linyi authorities were contacted, and they too were unable to locate Wang. We contacted all other companies that Wang controlled or had an interest in, but these companies either had failed already or denied any knowledge of Wang’s whereabouts;

From the information we currently hold and in discussion with the Linyi authorities, no insolvency proceedings have yet been taken against LVST.

NEXT STEPS

The CEITAC arbitration process will take about 6 months to conclude;

Based on the above, we believe that there are 2 potential assets which may produce funds:

Inner Mongolia

The land at LVST

However, as Honourfield’s agreement was with Wang, there is no current direct contractual relationship with LVST, accordingly the LVST guarantee will be called, thus creating the contractual link and allow Honourfield to make a claim against LVST’s assets.

In the interim, as the called guarantee may take some time to come into effect, we will be meeting both the IM and Linyi authorities in November to put them on notice and also to obtain an assessment of any potential recovery.